Be careful what you wish for -- user fees could hurt those that want them the mostBe careful what you wish for -- user fees could hurt those that want them the most

December 22, 2005

Be careful what you wish for - user fees could hurt those that want them the most

Many of the nation's biggest airlines are the strongest advocates for user fees. But a new white paper, "Turbulence ahead: How user fees could ground the FAA," by aviation industry expert Darryl Jenkins, shows that user fees could hurt both consumers and the airlines.

"Jenkins' research adds to the evidence that AOPA has been presenting against user fees," said AOPA President Phil Boyer. "A user-fee funded aviation system is bad public policy, strongly opposed by general aviation pilots, and, ironically, potentially harmful to the very people that it is supposed to benefit."

Jenkins, a visiting professor at Embry-Riddle Aviation University and recognized expert on airline economics, reiterated AOPA's position that the current FAA funding system works just fine.

"There is no evidence to justify radical changes in the aviation tax and fee system," Jenkins wrote. "Every available industry indicator relating to the FAA - including passenger volume and yield - are on the rise." (Boyer said the same thing before Congress last May.)

The bulk of the money flowing into the aviation trust fund comes from airline passenger ticket taxes, while fuel taxes help pay for general aviation's use of the system. And Jenkins notes that, while there was a short revenue downfall after 9/11, the trends are back up, with record-level revenues predicted in the immediate future.

"One thing all those who are publicly supporting user fees have in common is the mistaken belief that fares are going down," Jenkins said. "This argument is categorically wrong. Prices have been rising over the last year and with increases in the price of jet fuel, there is pressure...to raise prices further." (A portion of the ticket tax is directly tied to the price of the ticket.)

Jenkins says user fees would be "financial disaster" for U.S. airlines. "The reason is that when revenue from user fees decreases for any reason (typically, a soft economy), airlines and other stakeholders will have to make up the shortfall. The result will be an increase in operating expenses when airlines are least able to afford it, and such scenarios have already occurred in Canada and Germany."

Airlines could also legally avoid paying user fees. Considering that several of the so-called "legacy" carriers (who are among the most vocal user-fee proponents) are today operating under the protection of bankruptcy laws, Jenkins says, "Airlines in financial difficulty could avoid paying millions of dollars in user fees by filing for Chapter 11 bankruptcy protection. The resulting shortfall would have to be made up by other users." In contrast, a bankruptcy filing does not excuse payment of excise taxes.

He also says that collecting the current aviation taxes is "virtually automatic...there is little to argue about." But if user fees are extended to all aviation segments, the "FAA would need to deal with hundreds or thousands of individuals, organizations, and companies. Is the FAA...even remotely qualified to be a bill collector?" (As AOPA pointed out several years ago, the FAA had to create a multi-million-dollar bureaucracy just to collect the fees from a relatively small number of foreign aircraft over-flying U.S. airspace.)

User fees are also a step in the direction of privatizing or commercializing air traffic control, "for reasons of ideology as much as economics," according to Jenkins.

"Do we really want air traffic control or other FAA services subject to the same economic vagaries that have ravaged the airlines? The damage to their human capital over the past two decades has been mind-numbing," Jenkins said.

"Do we adopt an unstable business model that links aviation services to the health of the airline industry, where we alternate between ruthless cost-cutting that eliminates capable, experienced personnel, and frantic hiring and training of fresh-faced newcomers to cope with another brief period of sunny skies for the airlines?

"Could the FAA be improved, or made more efficient? Of course. But that hardly justifies abandoning a system that for all its faults has created the world's largest aviation system, which - on most days - performs with a reasonable level of efficiency and a remarkable level of safety," Jenkins concluded.

Jenkins was commissioned by the National Air Traffic Controllers Association to prepare the white paper.